Summer 2017 will officially arrive on June 21 and the warm temperatures promise to seduce us with sunshine and flowers. Summer is the primary vacation season and many businesses slow down with its arrival , with the exception of tourist industry service providers and wedding planners and their usual sub-contractors: caterers, florists, photographers, DJs and videographers, many of whom are Freelancers. The rest of us, however, have to get creative and try to maintain our discipline and resolve as the heat and humidity conspire against ambition. This lovely time of year can present a real financial challenge for Freelancers. How can we remain productive and scare up some billable hours? Summer is the ideal time to devote attention to positioning your venture to make money in the fourth quarter and beyond.
I suggest that you conduct business forecasting at your organization this summer. Business forecasting is the cornerstone of business planning and business planning is the foundation of enabling business profitability. Forecasting helps business owners and Freelancers to objectively examine the monetary value of each revenue stream that the venture generates, so that it becomes very clear which lines of business are making money and the amount of profitability of each line. Forecasting shows you where you should devote your resources and in that way generate increased billable hours, revenues and profits.
Forecasting in your Freelance venture is crucial: client work, teaching assignments, writing assignments, subcontracting work for other Freelancers and maybe even an under-the-radar odd job along the way to fatten the coffers are among the business activities in which we engage to maintain cash-flow. It’s very useful to know which of these lines of business is worth more attention and those that you may want to drop, since the returns are meager.
Let’s face reality—we B2B Freelance service providers often don’t know when our next client will come along, or what s/he will want to spend on services when that happens. It’s so easy to wind up scrambling from new client to new client without getting much repeat business, or adequate control over our earning capacity. That’s why it’s vital that we:
- Identify where the earning potential really is (and it might not be client work)
- Create strategies and action plans that promote successful participation in those of your business activities that are the most profitable
There are thousands of Freelancers who make their real money not from client work, which can be both scarce and erratic, but on other related business lines. For hiilucky Freelancers who have national renown, that could be book sales, paid speaking engagements and paid writing assignments. For others, it’s their coaching business that is the real profit engine. In such cases, the client work is necessary to lend credibility and enable access to the other, much more profitable, activities.
So how does one conduct business forecasting? If you use Intuit QuickBooks software, you can build a model on that system. If you have at least three or four years’ of client data in QuickBooks, you will receive much valuable, actionable information about your business, including:
- Profitability and profit margins
- Average revenue /client
- Average billable hours /client
If you keep your financial data on Excel, review the past five years’ of invoices (or as far back as possible in a newer venture) and identify your top five or ten most lucrative revenue streams, whether that is client work or other related projects. Invoice dates will reveal seasonal revenue generating patterns and the invoices will remind you of which of your services sells the most and which the least. Billable hours and hourly or project fee rates should also be noted. It will take longer to generate the data, but as with QuickBooks, much valuable and actionable data can be extracted from your Excel based financials.
There are two basic methods of business forecasting, Qualitative and Quantitative. Qualitative forecasting models are based on market research and they’re most effective in predicting short-term cycles. Quantitative forecasting models are based on data and the approach is more effective than the qualitative model in predicting long-term cycles.
There are various types of quantitative forecasting approaches and for small and medium size business forecasting, the Time Series Method is most useful. The Time Series Method uses historical financial data to predict future results. When you go to your bank for a business loan and five years’ of your financials are requested, the loan officer is using the Time Series Method to predict whether you will be able to generate enough cash-flow and sales revenues to repay the loan on time.
Once you have your financials in hand, Step 2 of Business Forecasting is the development of a marketing plan that contains strategies and action plans that create the road map that your organization will follow as you seek to expand those business lines that generate the most revenues for you and consider dropping those that perform poorly.
When you see with irrefutable data that reveals which of your services brings home the most money, you will likely get a clearer picture of your ideal clients and the messages and marketing platforms that resonate with them. An amended pricing strategy and/or sales distribution method may be instituted, as might tweaking of your business model.
Business forecasting reveals patterns in client activity that are often overlooked and the process allows you to anticipate demand for your services, reveals which services historically have produced the greatest sales revenues, reveals the types of clients that spend the most with you and in general, shows on what side the toast is buttered.
With objective confirmation of your best client categories and most popular services, you can concentrate on how to access those clients, including bigger budget clients within the categories and you’ll know how best to sell to them. You will work not only hard, but also smart, to grow your client list and increase billable hours, revenues and profits and that will be the best use of your time during this glorious summer.
Thanks for reading,